TERADATA CORP /DE/ MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (“MD&A”) (Form 10-K)

You should read the following discussion in conjunction with the consolidated
financial statements and the notes to those statements included in this Annual
Report on Form 10-K ("Annual Report"). This Annual Report contains certain
statements that are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain statements contained in the MD&A are
forward-looking statements that involve risks and uncertainties. The
forward-looking statements are not historical facts, but rather are based on
current expectations, estimates, assumptions and projections about our industry,
business and future financial results. Our actual results could differ
materially from the results contemplated by these forward-looking statements due
to several factors, including those discussed in other sections of this Annual
Report. See "Risk Factors" and "Forward-looking Statements."

PREVIEW

Teradata is a provider of a leading connected multi-cloud data platform for
enterprise analytics, focused on helping companies leverage all their data
across an enterprise, at scale. In doing so, we help companies to find answers
to their toughest business challenges. All of our efforts are in support of our
purpose of transforming how businesses work and people live through the power of
data. Our platform is composed of our data platform - Teradata Vantage

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- which is designed to run across on-premises, private cloud and public cloud
environments. This platform is supported by business consulting and support
services that enable customers to extract insights from across a company's
entire data and analytics ecosystem. Teradata's strategy is discussed under Part
I, Item I of this Annual Report on Form 10-K.

We are continuing to execute on our key priorities, including significant
product expansion of our Teradata Vantage multi-cloud data platform offering,
expanding our footprint with existing customers and adding new customers,
increasing our focus on diversity and inclusiveness, and driving operational
excellence and agility across the company.

To provide greater transparency regarding the progress we are making towards our strategic objectives, we use the following financial and performance measures:

•Annual Recurring Revenue ("ARR") - annual value at a point in time of all
recurring contracts, including subscription, cloud, software upgrade rights, and
maintenance. ARR does not include managed services and third-party software.

•Public Cloud ARR (included within total ARR) - annual value at a point in time
of all contracts related to public cloud implementations of Teradata Vantage and
does not include ARR related to private or managed cloud implementations.

•Cloud Net Expansion Rate - Teradata calculates its last-twelve months
dollar-based cloud net expansion rate as of a fiscal quarter end as follows. We
identify the ARR for active cloud customers in the fiscal quarter ending one
year prior to the given fiscal quarter (the "base period"). We then identify the
cloud ARR in the given fiscal quarter (the "current period") from the same set
of active cloud customers as the base period, including increases in usage, as
well as reductions and cancellations, and additional conversions of on-premises
revenues to the cloud for customers active in the base period, all in constant
currency. The quarterly dollar-based, cloud net expansion rate is calculated by
taking the ARR from the current period and dividing by the ARR from the base
period. The last twelve-month dollar-based cloud net expansion rate is
calculated by taking the average of the quarterly dollar-based cloud net
expansion rate from the last fiscal quarter and the prior three fiscal quarters.

COVID-19 Update

During the twelve months ended December 31, 2021, the effects of the coronavirus
("COVID-19") pandemic and the related actions by governments around the world to
attempt to contain the spread of the virus impacted our business globally as
described below.

In response to the pandemic, we took actions to manage expenses and costs
appropriately in light of the uncertainty COVID-19 has created, which has had a
positive impact on our operating performance. We continue to monitor COVID-19
impacts to our business and have undertaken additional expense management and
cost measures to further drive our operating performance and provide agility in
the event of an unforeseen reduction in demand should it occur. During 2021, we
also experienced increased volatility in foreign currency exchange rates, in
part related to the uncertainty from COVID-19, as well as actions taken by
governments and central banks in response to COVID-19. Certain foreign currency
rates have depreciated significantly against the U.S. dollar during this period.
We expect continued volatility in foreign currency exchange rates in 2022.

Our supply chain has been relatively stable with respect to manufacturing and
distribution capabilities during COVID-19; however, our supply chain is
susceptible to volatility due to ongoing uncertainty as a result of ongoing
international and domestic pandemic response and recovery efforts.
Operationally, we have been able to run our business without significant
interruptions, with the vast majority of employees working remotely. While
consulting revenue is still impacted by work from home and travel restrictions,
we have modified our business approach where applicable to work with customers
remotely. Our customers' reduction in discretionary spending in light of
COVID-19 uncertainties has also impacted our consulting business, with
consulting projects being delayed or suspended by our customers. We implemented
several employee engagement and communication programs designed to support
employees' health and well-being while also enhancing their productivity during
the pandemic.

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Our priorities in formulating and implementing our response to the COVID-19 pandemic and related trade disruptions are:

•People - protecting the health and well-being of our employees,
•Customers - proactively connecting with our customers to support their needs
and meet our service level commitments, while continuing to help them gain real
business value from their data assets,
•Supply Chain - proactively working to monitor existing inventory, supplier
availability and securing inventory for future quarters,
•Financial - responsibly managing expenses and costs to provide financial
agility during the extended period of global economic uncertainty,
•Global Community - having our technology contribute to customers, partners and
communities, particularly in healthcare and government, where collectively we
can positively impact efforts in combating COVID-19, and
•Future of Work - learning from productivity improvements and understanding our
employees' preferences for their work location to implement a work model that
reflects the future of work for the Company.

As of the date of this Annual Report on Form 10-K, we are continuing to execute
our pandemic response plan, and the Teradata Pandemic Response Team is refining
and executing return-to-office plans. Under our return-to-office plans, none of
our employees are required to return to an office environment and can choose to
continue to work remotely or under a hybrid model. For employees choosing to
return to the office environment, certain safety protocols will be required to
be followed. Customer-facing teams are also proactively working to identify ways
to assist customers, meet service level commitments, and engage with customers
via virtual events.

Despite these efforts, there remains a fair degree of uncertainty regarding the
potential impact of the pandemic on our business, from both a financial and
operational perspective, and the scope and costs associated with additional
measures that may be necessary in response to the pandemic going forward. We
will continue our diligent efforts to monitor and respond as appropriate to the
impacts of the pandemic on our business, including the status of our workforce,
supply chain, customers, suppliers, and vendors, based on the priorities
described above. Our actions will continue to be informed by the requirements
and recommendations of the federal, state or local authorities. We intend to
remain agile and have contingency plans in place to appropriately respond to
conditions as they unfold. For more information, see "Risk Factors" under Part
I, Item 1A of this Annual Report on Form 10-K.

FINANCIAL OVERVIEW 2021

As discussed in more detail in later sections of this MD&A, here are the financial highlights for 2021:

•Revenue of $1,917 million increased by 4% in 2021 as compared to 2020, with an
underlying 12% increase in recurring revenue primarily driven by our transition
from perpetual to subscription-based transactions. The increase in recurring
revenue was partially offset by a 28% decrease in perpetual software licenses,
hardware and other revenue and a 10% decrease in consulting services revenue.
The decline in consulting service revenue is primarily due to our focus on
higher-margin engagements.
•Gross profit was 61.9% in 2021, an increase from 55.5% in 2020, primarily due
to a higher recurring revenue mix as compared to the prior year.
•Operating expenses in 2021 decreased by 5% as compared to 2020, primarily
driven by a lower employee cost base resulting from the workforce reduction
measures taken in 2020.
•Operating income was $231 million in 2021, up from $16 million in 2020.
•Net income was $147 million in 2021 versus net income of $129 million in 2020,
primarily due to improved revenue mix and lower operating expenses. Diluted net
earnings per share was $1.30 in 2021 compared to diluted earnings per share of
$1.16 in 2020.

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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

In July 2019, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update 2019-07, "Codification Updates to SEC
Sections-Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.
33-10532, Disclosure Update and Simplification", which makes a number of changes
meant to simplify certain disclosures in financial condition and results of
operations, particularly by eliminating year-to-year comparisons between prior
periods previously disclosed. In accordance with the relevant aspects of the
rule covering the current year annual report, we now include disclosures on
results of operations for fiscal year 2021 versus 2020 only. For discussion of
fiscal year 2020 versus 2019 see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" in our Annual Report filed
with the SEC for the fiscal year ended December 31, 2020.

Revenue
                                                                        % of                                  % of
In millions                                          2021             Revenue              2020             Revenue
Recurring                                         $ 1,464                 76.4  %       $ 1,309                 71.3  %
Perpetual software license, hardware and other         77                  4.0  %           107                  5.8  %
Consulting services                                   376                 19.6  %           420                 22.9  %
Total revenue                                     $ 1,917                  100  %       $ 1,836                  100  %


2021 compared to 2020 - Total revenue increased 4% in 2021 and included a 1%
positive impact from foreign currency fluctuations. Recurring revenue grew 12%
in 2021 and included a 1% positive impact from foreign currency fluctuations.
Recurring revenue was positively impacted primarily due to a higher base of
revenue driven by continued growth in public cloud and subscription ARR during
2020 and 2021. Additionally, on-premises customer transactions involving
substantive long-term commitments resulted in revenue being recognized on a
recurring annual basis rather than a recurring quarterly basis resulting in
approximately $30 million of net positive impact in 2021 compared to 2020. For
full year 2022, recurring revenue is expected to grow at a
low-to-mid-single-digit percentage year-over-year. Taking into consideration the
growth in recurring revenue offset by reduced perpetual software licenses,
hardware and other revenue and reduced consulting services revenue, total
revenue is expected to be flat-to-low-single-digit percentage growth
year-over-year.

Revenues from perpetual software licenses, hardware and other were down 28% in
2021, as customers continue to transition to our subscription-based offerings,
consistent with our overall strategy. Aligned with our strategy, we expect
perpetual software licenses, hardware and other revenue to decline in 2022.

Consulting services revenue decreased 10%, including a 2% positive impact from
foreign currency fluctuations, primarily due to the realignment and focus of our
consulting resources on higher-margin engagements that are intended to drive
increased software consumption within our targeted customer base. Consistent
with our continued focus on higher-margin engagements that further our strategy,
we are forecasting a low-double-digit decline year-over-year in 2022 consulting
services revenue.

As a portion of the Company's operations and revenue occur outside the United
States, and in currencies other than the U.S. dollar, the Company is exposed to
fluctuations in foreign currency exchange rates. Based on currency rates as of
January 31, 2022, Teradata is estimating a 2.0%-to-2.5% negative impact from
currency translation on our 2022 full-year total revenues.

Below are the financial growth and performance indicators we used to track the progress of our transformation, the success of our business strategy, and Teradata’s overall financial position for 2021:

•ARR was $1.492 billion at the end of 2021, a 5% increase from $1.425 billion at
the end of 2020; and
•Public Cloud ARR was $202 million at the end of 2021, a 91% increase from $106
million at the end of 2020.

Our ARR is made up of three main categories: (1) Public Cloud ARR, (2) ARR related to on-premises and private cloud subscription agreements (“Subscription ARR”), and (3) ARR related to our maintenance perpetual inherited. and software upgrade rights. AT December 31, 2021our ARR consisted of:

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•$202 million in Public Cloud ARR;
•$898 million in Subscription ARR; and
•$392 million in maintenance and software upgrade rights ARR.

Public Cloud ARR increased 91% versus the prior year primarily due to
on-premises customers migrating to Teradata Vantage in the cloud along with
strong net expansion rates in excess of 130%. Subscription ARR increased 8% in
2021 from the prior year due to expansions of existing customers and new
customer logos. Our maintenance and software upgrade rights ARR declined 20%
compared to 2020. This was expected as the Company continued its transition to a
subscription model and customers increasingly purchased Teradata on a
subscription and/or public cloud basis. Our overall ARR growth was driven by
increased participation by cloud specialists on our account teams, increasing
partner involvement on existing customer migrations and new logo accounts. For
the full year 2022, Public Cloud ARR is expected to increase by approximately
80% year-over-year. Total ARR is expected to grow at a mid-to-high-single-digit
percentage year-over-year.

Gross Profit

The Company often uses specific terms and definitions to describe gross margin variances. The most frequently used terms and definitions are:

•Revenue Mix - The proportion of recurring, consulting, and perpetual software
licenses and hardware that generates the total revenue of the Company. Changes
in revenue mix can have an impact on gross profit even if total revenue remains
unchanged.

• Recurring Revenue Mix – The proportion of various recurring revenue offerings that make up total recurring revenue. For example, a higher mix of onsite subscriptions, including equipment rental, could negatively impact total recurring gross profit.

•Deal Mix - Refers to the type of transactions closed within the period that
generate the total perpetual software license and hardware revenue. For example,
a higher mix of Teradata versus third-party products can impact profitability.

Gross profit for subsequent years completed the 31st of December was the following:

                                                                        % of                                  % of
In millions                                          2021             Revenue              2020             Revenue
Gross profit
Recurring                                         $ 1,099                 75.1  %       $   938                 71.7  %
Perpetual software licenses, hardware and other        34                 44.2  %            43                 40.2  %
Consulting services                                    53                 14.1  %            38                  9.0  %
Total gross profit                                $ 1,186                 61.9  %       $ 1,019                 55.5  %


2021 compared to 2020 - The increase in recurring revenue gross profit, as a
percentage of revenue was primarily driven by a higher amount of recurring
revenue at an improved gross margin rate primarily resulting from improved
operating efficiencies of our subscription and cloud offerings and partially
offset by the higher mix as a result of our customers transitioning to cloud.
Upfront revenue recognition of certain renewed and expanded on-premises customer
arrangements, as discussed above, also had a positive impact on recurring
revenue gross margin.

The increase in perpetual software licenses, hardware and other gross profit as
a percentage of revenue was primarily driven by deal mix and opportunities with
lower hardware mix as compared to prior year.

Consulting services gross profit as a percentage of revenue increased as
compared to the prior year primarily due to improved resource mix utilization as
well as increased profit dollar realization from our continued strategic focus
to improve consulting margins by executing on higher-value projects. The Company
expects to continue to focus our consulting organization on Teradata
Vantage-oriented offerings and reduce our footprint in non-core consulting
engagements.

For 2022, we expect overall gross margin as a percentage of revenue to be slightly lower than 2021. Recurring gross margin is expected to be lower due to a higher mix of cloud revenue at a similar gross margin rate to of 2021. We are

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also investing in activities that continue to drive increased adoption and
consumption of Teradata Vantage, including greater efficiencies with cloud
service providers, offset by enhancements to our consumption pricing model. In
addition, we are forecasting less of a positive impact from upfront recurring
revenue that benefited our results in 2021. Consulting services margin is
expected to be at a similar gross margin rate as 2021, and we anticipate lower
gross margin rates in perpetual software licenses, hardware and other in 2022
compared to 2021.

Operating Expenses
                                                                          % of                                  % of
In millions                                            2021             Revenue              2020             Revenue
Operating expenses
Selling, general and administrative expenses         $  646                 33.7  %       $   669                 36.4  %
Research and development expenses                       309                 16.1  %           334                 18.2  %

Total operating expenses                             $  955                 49.8  %       $ 1,003                 54.6  %


2021 compared to 2020 - The decrease in selling, general and administrative
("SG&A") expense was primarily driven by a lower employee cost base resulting
from workforce reduction measures in 2020, reduced travel and marketing spend as
compared to the prior year pre-pandemic period (January - March 2020), and
continued cost discipline as compared to prior year. This decrease in SG&A
expense was partially offset by higher variable incentive compensation that was
tied to Teradata's financial performance, higher cloud sales incentive
compensation expenses, and additional investments in our go-to-market operations
to further our transformation and cloud-first strategic focus.

R&D expenses decreased in 2021 as compared to the prior year. R&D expenses were
impacted by a lower employee cost base resulting from workforce reduction
measures in 2020 and continued cost discipline as compared to the prior year
partially offset by an increase in spending to focus our R&D efforts on
accelerating our transformation and cloud-first strategy and related cloud
initiatives, as well as higher variable incentive compensation expense due to
Teradata's positive financial performance.

We expect total operating expenses to increase in 2022 as we are accelerating
our investments in cloud R&D, go-to-market, and customer success to drive growth
and lifetime value with new and existing customers.

Other Expense, net
In millions                  2021       2020

Interest income             $   6      $   4
Interest expense              (26)       (27)
Other                         (19)       (17)
Total Other Expense, net    $ (39)     $ (40)


Other expense, net in 2021 and 2020, is comprised primarily of interest expense
on long-term debt and finance leases, as well as benefit costs for our pension
and postemployment plans, partially offset by interest income earned on our cash
and cash equivalents.

Provision for Income Taxes

The effective tax rate for subsequent years ended the 31st of December was the following:

                       2021        2020

Effective tax rate 23.4% 637.5%


The 2021 effective tax rate included a net $8 million of discrete tax benefit,
of which $3 million of tax benefit was related to true-up adjustments to
reconcile the Company's 2020 U.S. tax return versus the preliminary estimate as
booked in its tax provision for the year ended December 31, 2020 and $2 million
of tax benefit related to a reduction in the Transition Tax based on the
Company's amended 2017 tax return. In addition, the Company recognized $4
million of incremental tax benefit related to stock-based compensation. These
tax benefits were partially offset by

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$1 million discrete tax expense related to adjustments to the Company’s accrued liability for unrecognized tax benefits in accordance with FIN 48.

The 2020 effective tax rate included a net $157 million of discrete tax benefit.
The net discrete tax benefit of $157 million was recorded and relates to the
transfer of foreign intellectual property as more fully described in Note 6 of
Notes to Consolidated Financial Statements. In addition, the Company recognized
a net $13 million of tax benefit resulting from the CARES Act of 2020, which
allows U.S. corporations a one-time opportunity to claim income tax refunds by
allowing a 5-year net operating loss ("NOL") carry-back for taxable losses
incurred in the tax year 2020. Teradata intends to carry back its 2020 NOL to
claim a refund for taxes it paid in 2015, which created a one-time income tax
benefit for the difference between the 35% 2015 carry back tax rate and the
current 21% federal statutory rate. These tax benefits were partially offset by
$9 million tax expense related to stock-based compensation and $4 million of
incremental global intangible low-taxed income ("GILTI") tax. These discrete net
tax benefits resulted in full-year total income tax benefit in 2020 of $153
million, on a pre-tax net loss of $24 million, causing a tax rate of 637.5%.

The Company is expecting its full-year effective tax rate for 2022 to be
approximately 32%, which takes into consideration, among other things, the
forecasted earnings mix by jurisdiction and the estimated discrete items to be
recognized in 2022. The forecasted tax rate is based on the overseas profits
being taxed at an overall effective tax rate of approximately 27%, as compared
to the federal statutory tax rate of 21% in the U.S.

Revenue and gross margin by operating segment

Teradata manages its business under three geographic regions, which are also the
Company's operating segments: (1) Americas region (North America and Latin
America); (2) EMEA region (Europe, Middle East, and Africa) and (3) APJ region
(Asia Pacific and Japan). For purposes of discussing results by segment,
management excludes the impact of certain items, consistent with the manner by
which management evaluates the performance of each segment. This format is
useful to investors because it allows analysis and comparability of operating
trends. It also includes the same information that is used by Teradata
management to make decisions regarding the segments and to assess financial
performance. The chief operating decision maker, who is our President and Chief
Executive Officer, evaluates the performance of the segments based on revenue
and multiple profit measures, including segment gross profit. For management
reporting purposes, assets are not allocated to the segments. Our segment
results are reconciled to total company results reported under GAAP in Note 14
of Notes to Consolidated Financial Statements.

The following table shows revenue and operating performance by segment for the years ended the 31st of December:

                                             % of                      % of
In millions                     2021        Revenue       2020        Revenue
Segment revenue
Americas                      $ 1,044        54.5  %    $ 1,025        55.8  %
EMEA                              543        28.3  %        485        26.4  %
APJ                               330        17.2  %        326        17.8  %
Total segment revenue         $ 1,917         100  %    $ 1,836         100  %
Segment gross profit
Americas                      $   690        66.1  %    $   631        61.6  %
EMEA                              337        62.1  %        273        56.3  %
APJ                               188        57.0  %        168        51.5  %

Total sector gross profit $1,215 63.4% $1,072 58.4

 %


2021 compared to 2020

Americas

Americas revenue increased 2% with no underlying impact from foreign currency fluctuations. An augmentation of Americas recurring revenue of 8% was partially offset by a 49% decline in perpetual software licenses and

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hardware revenue and a 15% decline in consulting revenue. Segment gross margin, as a percentage of revenue, increased primarily due to a higher overall mix of recurring revenue.

EMEA

EMEA revenue increased 12%, which included a 3% favorable impact from foreign
currency fluctuations. An increase of 19% in EMEA recurring revenue and 1% in
consulting revenue was partially offset by a decrease of 5% in perpetual
software licenses and hardware revenue. EMEA segment gross profit, as a
percentage of revenues, was higher primarily due to a higher mix of recurring
revenue.

APJ

APJ revenue increased 1%, which included a 3% favorable impact from foreign
currency fluctuations. An increase in APJ recurring revenue of 16% was partially
offset by a decrease of 24% in perpetual software licenses and hardware revenue
and a decrease in consulting revenue of 17%. APJ segment gross profit, as a
percentage of revenues, was higher primarily due to a higher mix of recurring
revenue.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Teradata ended 2021 with $592 million in cash and cash equivalents, a $63
million increase from December 31, 2020, after using approximately $244 million
for repurchases of Company common stock during the year. Cash provided by
operating activities increased by $196 million to $463 million in 2021 compared
to 2020. Teradata used approximately $40 million of cash in 2021 for
reorganizing and restructuring its operations and go-to-market functions to
align to its cloud-first strategy, as compared to $58 million used in 2020 for
this purpose. The increase in cash provided by operating activities was
primarily due to improved profitability and differences in timing of various
components of working capital.

Teradata's management uses a non-GAAP measure called "free cash flow," which is
not a measure defined under GAAP. We define free cash flow as net cash provided
by operating activities less capital expenditures for property and equipment and
additions to capitalized software. Free cash flow is one measure of assessing
the financial performance of the Company, and this may differ from the
definition used by other companies. The components that are used to calculate
free cash flow are GAAP measures taken directly from the Consolidated Statements
of Cash Flows. We believe that free cash flow information is useful for
investors because it relates the operating cash flow of the Company to the
capital that is spent to continue and improve business operations. In
particular, free cash flow indicates the amount of cash available after capital
expenditures for, among other things, investments in the Company's existing
businesses, strategic acquisitions, and repurchase of Teradata common stock.
Free cash flow does not represent the residual cash flow available for
discretionary expenditures since there may be other non-discretionary
expenditures that are not deducted from the measure. This non-GAAP measure
should not be considered a substitute for, or superior to, cash flows from
operating activities under GAAP.

The table below shows the net cash provided by operating activities and capital expenditures for the following periods: In millions

                                   2021       2020

Net cash flow generated by operating activities $463 $267
Less: Expenditures for property, plant and equipment (28) (44) Additions to capitalized software

               (3)        (7)
Free cash flow                               $ 432      $ 216


Financing activities and certain other investing activities are not included in
our calculation of free cash flow. There were no other investing activities in
2021 and 2020.

Teradata's financing activities for the year ended December 31, 2021 primarily
consisted of cash outflows of $244 million for share repurchases, repayment of
our term loan of $44 million and $92 million of payments on finance leases,
partially offset by $24 million net inflows from other financing activities.

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Teradata's financing activities for the year ended December 31, 2020 primarily
consisted of cash outflows of $100 million for share repurchases, repayment of
our term loan of $25 million and $70 million of payments on finance leases,
partially offset by $9 million net inflows from other financing activities.

The Company purchased 5.8 million shares of its common stock at an average price
per share of $41.94 in 2021 and 4.8 million shares of its common stock at an
average price per share of $20.81 in 2020.

Share repurchases were made under two share repurchase programs initially
authorized by our Board of Directors in 2008. The first of these programs (the
"dilution offset program") authorizes the Company to repurchase Teradata common
stock to the extent of cash received from the exercise of stock options and the
Teradata Employee Stock Purchase Plan ("ESPP") to offset dilution from shares
issued pursuant to these plans. As of December 31, 2021, under the Company's
second share repurchase program (the "general share repurchase program"), the
Company had approximately $1,213 million of authorization remaining to
repurchase outstanding shares of Teradata common stock. Share repurchases made
by the Company are reported on a trade date basis. As part of its general share
repurchase program, on February 9, 2022, the Company entered into a $250 million
accelerated share repurchase agreement with JP Morgan as described in more
detail in Note 17 of Notes to Consolidated Financial Statements.

Proceeds from the ESPP and the exercise of stock options, net of tax paid for
shares withheld upon equity award settlement, were $24 million in 2021 and $9
million in 2020. These proceeds are included in other financing activities, net
in the Consolidated Statements of Cash Flows.

Our total cash and cash equivalents held outside the United States in various
foreign subsidiaries was $401 million as of December 31, 2021 and $338 million
as of December 31, 2020. The remaining balance held in the United States was
$191 million as of December 31, 2021 and $191 million as of December 31, 2020.
The Company considers a majority of its foreign earnings as not indefinitely
reinvested outside the United States. Effective January 1, 2018, the United
States moved to a territorial system of international taxation and, as such,
will generally not subject future foreign earnings to United States taxation
upon repatriation in future years.

Management believes current cash, cash generated from operations and the $400
million available under the Credit Facility will be sufficient to satisfy future
working capital, research and development activities, capital expenditures,
pension contributions, and other financing requirements for at least the next
twelve months. The Company principally holds its cash and cash equivalents in
bank deposits and highly-rated money market funds.

The Company's ability to generate positive cash flows from operations is
dependent on general economic conditions, competitive pressures, and other
business and risk factors described in this Annual Report. If the Company is
unable to generate sufficient cash flows from operations, or otherwise to comply
with the terms of the credit facility and term loan agreement, the Company may
be required to seek additional financing alternatives.

Long-term debt. Our long-term debt and minimum debt at
December 31, 2021including our credit facility, are discussed in Note 12 of the Notes to the Consolidated Financial Statements.

Leases. In the normal course of business, the Company enters into operating and
finance leases that impact, or could impact, our liquidity. Leases and minimum
lease obligations as of December 31, 2021 are described in detail in Note 13 of
Notes to Consolidated Financial Statements.

Contractual and Other Commercial Commitments. In the normal course of business,
we enter into various contractual obligations that impact, or could impact, our
liquidity. The following table and discussion outline our material obligations
at December 31, 2021, with projected cash payments in the periods shown:
                                                  Total                   2023-      2025-       2027 and
In millions                                      Amounts       2022       2024       2026       Thereafter
Transition tax                                  $     69      $   -      $  40      $  29      $        -
Purchase obligations                                 611        170        279        162               -

Total transition tax and purchase obligations $680 $170 $319 $191 $-


Transition tax is the remaining payable balance as of December 31, 2021 of the
one-time tax on accumulated foreign earnings resulting from the 2017 Tax Act.
The payments associated with this deemed repatriation will be

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paid over seven years ending in 2025. Purchase obligations are committed
purchase orders and other contractual commitments for goods and services and
include non-cancelable contractual payments for fixed or minimum amounts to be
purchased in relation to service agreements with various vendors for ongoing
telecommunications, information technology, hosting and other services.

Additionally, the Company had $43 million of unrecognized tax benefits recorded
on its balance sheet as of December 31, 2021, of which $22 million is recorded
in non-current liabilities, $2 million is reflected as a current liability in
taxes payable, and $19 million is reflected as an offset to deferred tax assets
related to certain tax attribute carryforwards. These items are not included in
the table of obligations shown above. The settlement period for the non-current
income tax liabilities cannot be reasonably estimated as the timing and the
amount of the payments, if any, will depend on possible future tax examinations
with the various tax authorities. However, the Company expects that $2 million
in payments will be due within the next 12 months.

We also have postemployment and international pension obligations that may
affect future cash flow. These items are not included in the table of
obligations shown above. The Company is also potentially subject to
concentration of supplier risk. Our hardware components are assembled
exclusively by Flex Ltd. ("Flex"). Flex procures a wide variety of components
used in the manufacturing process on our behalf. Although many of these
components are available from multiple sources, Teradata utilizes preferred
supplier relationships to better ensure more consistent quality, cost, and
delivery. Typically, these preferred suppliers maintain alternative processes
and/or facilities to ensure continuity of supply. Given the Company's strategy
to outsource its manufacturing activities to Flex and to source certain
components from single suppliers, a disruption in production at Flex or at a
supplier could impact the timing of customer shipments and/or Teradata's
operating results. In addition, a significant change in the forecasts to any of
these preferred suppliers could result in purchase obligations or components
that may be in excess of demand. Postemployment and pension obligations are
described in detail in "Note 8-Employee Benefit Plans" in the Notes to
Consolidated Financial Statements.

Off-balance sheet arrangements. We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which may have been established for the purpose of facilitating off-balance sheet arrangements or for the purpose of other close contractual arrangements. or for limited purposes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements are prepared in accordance with GAAP. In connection
with the preparation of these financial statements, we are required to make
assumptions, estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses and the related disclosure of contingent
liabilities. These assumptions, estimates and judgments are based on historical
experience and assumptions that are believed to be reasonable at the time.
However, because future events and their effects cannot be determined with
certainty, the determination of estimates requires the exercise of judgment. Our
critical accounting policies are those that require assumptions to be made about
matters that are highly uncertain. Different estimates could have a material
impact on our financial results. Judgments and uncertainties affecting the
application of these policies and estimates may result in materially different
amounts being reported under different conditions or circumstances. Our
management periodically reviews these estimates and assumptions to ensure that
our financial statements are presented fairly and are materially correct.

In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require significant management
judgment in its application. There are also areas in which management's judgment
in selecting among available alternatives would not produce a materially
different result. The significant accounting policies and estimates that we
believe are the most critical to aid in fully understanding and evaluating our
reported financial results are discussed in the paragraphs below. Teradata's
senior management has reviewed these critical accounting policies and related
disclosures with the Audit Committee of Teradata's Board of Directors. For
additional information regarding our accounting policies and other disclosures
required by GAAP, see "Note 1-Description of Business, Basis of Presentation and
Significant Accounting Policies" in the Notes to Consolidated Financial
Statements.

Revenue Recognition

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On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with
Customers ("ASC 606"). This standard replaced existing revenue recognition rules
with a comprehensive revenue measurement and recognition standard and expanded
disclosure requirements. Refer to Notes 1 and 3, of our audited consolidated
financial statements included in this Annual Report on Form 10-K for discussion
of our revenue recognition policies.

Revenue recognition for complex contractual arrangements requires judgment,
including a review of specific contracts, past experience, creditworthiness of
customers, international laws and other factors. Specifically, complex
arrangements with nonstandard terms and conditions may require significant
contract interpretation to determine the appropriate accounting. We must also
apply judgment in determining all performance obligations in the contract and in
determining the standalone selling price of each performance obligation,
considering the price charged for each product when sold on a standalone basis
and applicable renewal rates for services and subscriptions. Changes in
judgments about these factors could impact the timing and amount of revenue
recognized between periods.

The Company reviews the standalone selling price on a periodic basis and updates
it, when appropriate, to ensure that the practices employed reflect the
Company's recent pricing experience. The Company maintains internal controls
over the establishment and updates of these estimates, which includes review and
approval by the Company's management. For the year ended December 31, 2021 there
was no material impact to revenue resulting from changes in the standalone
selling price, nor does the Company expect a material impact from such changes
in the near term.

Income Taxes

In accounting for income taxes, we recognize deferred tax assets and liabilities
based on the differences between the financial statement carrying amounts and
the tax basis of assets and liabilities. The deferred tax assets and liabilities
are determined based on the enacted tax rates expected to apply in the periods
in which the deferred tax assets or liabilities are expected to be settled or
realized. The Company made an accounting policy election in 2018 related to the
2017 Tax Act to provide for the tax expense related to GILTI in the year the tax
is incurred.

Effective January 1, 2018, the United States moved to a territorial system of
international taxation, and as such will generally not subject future foreign
earnings to United States taxation upon repatriation in future years. The
Company considers a majority of its foreign earnings not indefinitely reinvested
outside of the United States. However, these distributions may be subject to
non-U.S. withholding taxes if profits are distributed from certain
jurisdictions; accordingly, the Company has recorded $4 million of deferred
foreign tax expense with respect to certain earnings that are not considered
permanently reinvested. Deferred taxes have not been provided on earnings
considered indefinitely reinvested.

We account for uncertainty in income taxes by prescribing thresholds and
attributes for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. We may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. We record any interest and/or
penalties related to uncertain tax positions in the income tax expense line on
our Consolidated Statements of Income. As of December 31, 2021, the Company has
a total of $43 million of unrecognized tax benefits, of which $22 million is
included in the other liabilities section of the Company's consolidated balance
sheet as a non-current liability and $2 million is reflected as a current
liability in taxes payable. The remaining balance of $19 million of uncertain
tax positions relates to certain tax attributes generated by the Company which
are netted against the underlying deferred tax assets recorded on the balance
sheet.

We regularly review our deferred tax assets for recoverability and establish a
valuation allowance if it is more likely than not that some portion or all of a
deferred tax asset will not be realized. We have recorded $58 million in 2021
and $51 million in 2020 for valuation allowances, a majority of which offset our
California R&D tax credit carryfoward, as the Company expects to continue to
generate excess California R&D tax credits into the foreseeable future.

On January 1, 2020, we transferred certain of our intellectual property among
our wholly-owned subsidiaries, which resulted in the recognition of deferred tax
assets of $157 million. The recognition of deferred tax assets from intra-entity
transfers of intellectual property required us to make significant estimates and
assumptions to determine the

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fair value of such intellectual property. Significant assumptions in valuing the
intellectual property include, but are not limited to, internal revenue and
expense forecasts, and the discount rate. The sustainability of our future tax
benefits is dependent upon the acceptance of these valuation estimates and
assumptions by the taxing authorities.

Stock-based compensation

We issue service-based and performance-based restricted share units. We measure
compensation cost for service-based restricted share unit awards at fair value
and recognize compensation expense over the service period. Our
performance-based restricted share units vest only if specific performance
conditions are satisfied. The number of shares that will be earned pursuant to
our performance-based restricted share unit awards can vary based on actual
performance. No shares will vest if the threshold objectives are not met. In the
event the objectives are exceeded, additional shares will vest up to a maximum
payout. The cost of our performance-based restricted share awards is expensed
over the performance period based upon management's estimate and analysis of the
probability of meeting the performance criteria. Because the actual number of
shares to be awarded is not known until the end of the performance period, the
actual compensation expense related to our performance-based restricted share
unit awards could differ from our current expectations. We account
for forfeitures for both service-based and performance-based restricted share
units as they occur instead of estimating forfeitures at the time of grant and
revising those estimates in subsequent periods if actual forfeitures differ from
our estimates.

Good will and intangible assets acquired

The Company reviews goodwill for impairment annually and whenever events or
changes in circumstances indicate the carrying value of goodwill may not be
recoverable. For 2019, the Company performed a quantitative impairment test. In
this test, the Company compares the fair value of each reporting unit to its
carrying value. The Company typically determines the fair value of its reporting
units using a weighting of fair values derived from the income and market
approaches. Under the income approach, the Company calculates the fair value of
a reporting unit based on the present value of estimated future cash flows. The
market approach estimates fair value based on market multiples of revenue and
earnings derived from comparable companies with similar operating and investment
characteristics as the reporting unit. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that unit, goodwill is
not impaired. If the carrying value of the net assets assigned to the reporting
unit exceeds the fair value of the reporting unit, then the Company records an
impairment loss equal to the difference. In the fourth quarter of 2021, the
Company performed its annual impairment test of goodwill and determined that no
impairment to the carrying value of goodwill was necessary.

Determining the fair value of goodwill and acquired intangibles is judgmental in
nature and involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, discount rates and future
economic and market conditions. The Company's estimates are based upon
assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable. These valuations require the use of management's assumptions,
which may not reflect unanticipated events and circumstances that may occur.

Leases

On January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)",
which requires leases with durations greater than twelve months to be recognized
on the balance sheet. We determine if a contract contains a lease at inception.
Our material operating leases primarily consist of automobiles in certain
countries and real estate, including office, storage and parking space. Our
operating leases generally have remaining terms of 2-5 years. Our finance leases
primarily consist of equipment financed for the purpose of delivering services
to our customers and generally have terms of 3 years.

Operating lease assets and liabilities are recognized at the lease commencement
date. Operating lease liabilities represent the present value of lease payments
not yet paid. Operating lease assets represent our right to use an underlying
asset and are based upon the operating lease liabilities adjusted for
prepayments or accrued lease payments, initial direct costs, lease incentives,
and impairment of operating lease assets. To determine the present value of
lease payments not yet paid, when available, we use the rate implicit in the
lease. However, real estate leases do not typically provide a readily
determinable implicit rate. Therefore, we estimate the incremental

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borrowing rate to discount the lease payments based on information available at
lease commencement. The incremental borrowing rate used in the calculation of
the lease liability is based on the secured rate associated with financed lease
obligations for each location of leased property. Many of our leases include
variable rental escalation clauses which are recognized when incurred. Some of
our leases also include renewal options and/or termination options that are
factored into the determination of lease payments and lease terms when it is
reasonably certain that the Company will exercise these options. Lease
agreements do not contain any material residual value guarantees or material
restrictive covenants. Leases with an initial term of 12 months or less are not
recorded on the balance sheet. Changes in judgments and estimates, such as the
likelihood of renewal options, impairments, or the incremental borrowing rate
could impact the amounts of assets or liabilities recorded or could impact the
amount of cost or expense recognized between periods.

Pensions and post-employment benefits

We measure pension and postemployment benefit costs and credits using actuarial
valuations. Actuarial assumptions attempt to anticipate future events and are
used in calculating the expense and liability relating to these plans. These
factors include assumptions we make about interest rates, expected investment
return on plan assets, total and involuntary turnover rates, and rates of future
compensation increases. In addition, our actuarial consultants also use
subjective factors such as withdrawal rates and mortality rates to develop our
valuations. We review and update these assumptions on an annual basis at the
beginning of each fiscal year. We are required to consider current market
conditions, including changes in interest rates, in making these assumptions.
The actuarial assumptions that we use may differ materially from actual results
due to changing market and economic conditions, higher or lower withdrawal
rates, or longer or shorter life spans of participants. These differences may
result in a significant impact to the measurement of our pension and
postemployment benefit obligations and to the amount of pension and
postemployment benefits expense we have recorded or may record. For example, as
of December 31, 2021, a one-half percent increase/decrease in the discount rate
would change the projected benefit obligation of our pension plans by
approximately $11 million, and a one-half percent increase/decrease in our
involuntary turnover assumption would change our postemployment benefit
obligation by approximately $8 million.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

An analysis of recently issued accounting pronouncements is described in “Note 1 – Description of business, method of presentation and significant accounting policies” in the notes to the consolidated financial statements of this annual report, and we incorporate this analysis by reference.

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